One of the world's most enigmatic multi-millionaires was behind bars last night after being arrested during an investigation into carousel fraud, the sophisticated swindle which costs European taxpayers billions of pounds a year.

John Deuss, a 64-year-old Dutch oil trader and banker, was detained by police on Bermuda after his disappearance from his luxury home on the island triggered a week-long manhunt. He is expected to appear in court this week, possibly today, facing extradition to Holland. At an earlier hearing, the court was told that Dutch authorities wanted him for questioning on suspicion of money laundering, handling stolen goods and "being in charge of a criminal organisation".

An international warrant had been issued for Mr Deuss's arrest after a bank he owns on Curaçao, in the Dutch Antilles, was closed last month during an Anglo-Dutch investigation into carousel fraud. British Customs officials had discovered that every individual arrested and charged with the fraud in the UK in the previous two years had an account at the First Curaçao International Bank (FCIB). Since raiding its headquarters and freezing its assets, investigators have discovered that about 2,500 British citizens suspected of carousel fraud hold accounts there.

While Mr Deuss is not accused of being engaged in carousel fraud, he is wanted for questioning over accusations that some of FCIB's clients used the bank to launder the proceeds of their crimes.

He is expected to deny any wrongdoing. In an email to the Guardian last month he said FCIB and its affiliated companies "have at all times conducted their business in full compliance with all applicable laws, regulations and rules". He added that "the companies deny any wrongdoing in connection with this matter and will vigorously defend their interests". Since then he has not been available for comment, and his secretary would say only: "He's travelling: I can't say where."

Mr Deuss's lawyers, who declined to comment, have retained Clare Montgomery, the British QC who was a member of the team which fought Spanish attempts to extradite General Augusto Pinochet from the UK eight years ago.

Born Johannes Christiaan Martinus Augustinus Maria Duess, the son of a garage-owner from Nijmegen, he entered the oil world during the 1973 energy crisis. Within a few years he was accused of swindling the Soviet government out of payments for oil worth £180m at today's prices. The Kremlin pursued him through the courts for more than 10 years before throwing in the towel.

In 1984 the Observer discovered he had been busting UN sanctions to supply oil to apartheid-era South Africa; his house in Holland was firebombed by a group called Pyromaniacs Against Apartheid while he was away from home.

Over the years, Mr Deuss has pumped oil out of Kazakhstan, bought a refinery and hundreds of petrol stations in the US, owned a couple of banks and opened his own fashion house in Manhattan.

A Dutch journalist allowed into his home on Bermuda a few years ago recalled: "He had this big villa where girls in bikinis were lounging around. A girl would bring him a Telex about some deal and he would say 'yes' or 'no' and she would go away to carry out his orders. It was like something out of a Harold Robbins novel."

His Curaçao bank came to the attention of the British and Dutch authorities as carousel fraud losses started to spiral out of control. Losses across Europe are estimated at around £30bn a year. The amount being siphoned from the UK's coffers was expected to reach £5bn this year,. However, UK losses tumbled sharply last month - the first fall for several years - after the raid on the FCIB.

By following the money trail left by suspected fraudsters, investigators arrived at the FCIB's headquarters in a small office block on Curaçao. Dutch authorities raided the bank and placed it in a form of administration to protect innocent customers. Simultaneous raids in Holland, London and south Wales resulted in the arrest of several people, including Mr Deuss's sister Martina, 60.

When the Dutch warrant was issued this month, the Bermudian authorities issued their own warrant for the arrest of Mr Deuss. When his lawyers failed to persuade a court on the island that there were no extradition arrangements between Holland and Bermuda, a British overseas territory, Mr Deuss vanished from his home in the Tucker's Town district.

Bermudian police finally tracked him down on Friday night, but will not disclose where or how he was arrested.

Carousel fraud: How it works ... what it costs

· Carousel fraud occurs when mobile phones or computer chips are passed round a group of trading firms, in and out of EU countries, with VAT reclaimed each time the goods cross a border

· The fraud has grown rapidly in the past 12-18 months after fraudsters developed "virtual" carousels, pushing money in and out of a bank in Curaçao to create the illusion of payments being made for goods

· Official figures are not available, but losses to the British taxpayer from the fraud could have exceeded £5bn last year and may top £10bn in 2006

· The closure last month of the First Curaçao International Bank, owned by John Deuss, dented carousel fraud severely since 2,500 UK-based carousel fraudsters used accounts there

· The problem is not confined to the UK; EU tax commissioner Laszlo Kovacs told the Guardian this year that EU governments were losing an estimated €50bn (£33.7bn) to the scam